Cyprus President Delays Parliament Vote on Deposit Tax Plan
Cyprus’s President Nicos Anastasiades will seek approval to impose losses on the island- nation’s depositors tomorrow, a day later than planned as he seeks more time to convince lawmakers to back him.
Anastasiades, less than a month in the job, will meet with the country’s lawmakers tomorrow, before the Parliament session on the legislation begins at 4 p.m., the Press and Information Office said in a statement on its website. The European Central Bank is pressing for the Cypriot government to stick to the original intention to hold a vote today on the plan, which would make Cyprus the first euro-area rescue to impose depositor losses, two people with knowledge of the discussions said.
With his Disy party holding 20 seats in the 56-seat legislature, Anastasiades needs at least nine more votes to secure approval and avoid the financial collapse of the region’s third-smallest economy. If he doesn’t get backing for the plan, the banks may stay shut starting March 19, state-run Cyprus Broadcasting Corp. said. Tomorrow is a bank holiday in Cyprus.
“If tomorrow Cyprus’s Parliament rejects the bill, Cyprus opens the road to chaos,” said Afxentis Afxentiou, who was governor of the Central Bank of Cyprus from 1982 until 2002, said on CYBC. If the bill is rejected, “Cyprus will turn into Libya. Even with the pain, we need to follow a normal course, with hope we’ll see better days.”
Euro-area finance ministers meeting in Brussels on March 15 and in the early hours of yesterday agreed to tax bank deposits in Cyprus as part of a 10 billion-euro ($13 billion) bailout mostly aimed at saving the country’s banks. Anastasiades, 66, was elected Cyprus’s leader on Feb. 24 on a promise to revive bailout talks, while refusing to accept losses for depositors.
“We faced decisions that had already been taken,” Anastasiades said in a statement yesterday. He said the ECB would stop providing liquidity to one of the country’s banks on March 19, leading to its collapse if his government didn’t accept the rescue package.
The choice was between “the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” he said.
Anastasiades met with leaders of the nation’s political parties yesterday. While he may get support from the third- biggest party, Diko, which backed Anastasiades in the election, Diko’s eight seats won’t assure him a majority.
The debate on the law, which will impose a levy of 6.75 percent on deposits of less than 100,000 euros and 9.9 percent of more than that, will be preceded by more meetings between Anastasiades and political leaders. Anastasiades, who met with his ministers today, will convene another meeting of the cabinet tomorrow morning, CYBC said.
The measure, which is designed to raise 5.8 billion euros, means a smaller bailout for the east Mediterranean island nation than the 17.5 billion euros envisioned at one point. Cypriots woke up yesterday to find bank transfers frozen as the country’s authorities prepared to remove the tax from accounts before banks reopen on March 19.
George Perdikes, a lawmaker from the Green Party who sits on Parliament’s finance committee, said ways were being examined to soften the blow to depositors. These include giving them bonds linked to profits from the country’s gas reserves, he said in comments broadcast on CYBC after a meeting of the committee’s members with Anastasiades.
“This is a lose-lose situation,” he said. “Whatever happens there will be a massive outflow from Cypriot banks, with or without a haircut.”
European officials have struggled to find an agreement that would rescue Cyprus, which accounts for less than half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Other elements of the rescue include asset sales and an increase in the corporate tax rate to 12.5 percent from 10 percent.
Cyprus in June became the fifth euro-area nation to request a rescue, after Greece’s debt restructuring, the largest in history, hurt lenders including Bank of Cyprus Plc and Cyprus Popular Bank Pcl (CPB), the nation’s two biggest.
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